[Federal Register Volume 60, Number 2 (Wednesday, January 4, 1995)]
[Notices]
[Pages 483-486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-110]



[[Page 483]]

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 94-87; Exemption Application No. D-
9770, et al.]


Grant of Individual Exemptions; The Lubrizol Corporation 
Employees' Stock Purchase and Savings Plan et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, DC. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (were appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978 transferred the authority of the Secretary of 
the Treasury to issue exemptions of the type proposed to the Secretary 
of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) The are protective of the rights of the participants and 
beneficiaries of the plans.

The Lubrizol Corporation Employees' Stock Purchase and Savings Plan 
(the Plan)

Located in Wickliffe, Ohio
[Prohibited Transaction Exemption 94-87; Exemption Application No. 
D-9770]

Exemption

    The restrictions of section 406(a), 406(b)(1) and (b)(2) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall 
not apply to the cash sale by the Plan to the Lubrizol Corporation, the 
Plan sponsor and a party in interest with respect to the Plan, of the 
Plan's interest (the Interest) in certain securities (the Securities) 
issued by Columbia Gas Systems, Inc., provided: (a) no commissions or 
other expenses are paid by the Plan in connection with the sale; (b) 
the Plan will receive the greater of $227,158.01 or the fair market 
value of the Plan's Interest in the Securities at the time of the sale 
as determined by Bankers Trust Company (BTC), the Plan's independent 
fiduciary; and (c) BTC has determined that the transaction is 
appropriate for the plan and in the best interest of the Plan and its 
participants and beneficiaries.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on November 1, 1994 at 59 FR 
54637.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number).

Wells Fargo Bank, N.A. (Wells Fargo) and Wells Fargo Institutional 
Trust Company, N.A. (WFITC)

Located in San Francisco, California
[Prohibited Transaction Exemption 94-88; Application Nos. D-9718 and 
D-9719]

Exemption

    The restrictions of sections 406(a)(1) (A) through (D) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1) (A) through (D) of the Code shall 
not apply to the lending of securities that are assets of an employee 
benefit plan for which Wells Fargo, WFITC or an affiliated company (the 
Applicants) are fiduciaries, provided that the following conditions are 
met:
    (A) The securities are loaned to a broker-dealer which is 
registered under the Securities Exchange Act of 1934 (the 1934 Act) or 
exempted from registration under section 15(a)(1) of the 1934 Act as a 
dealer in exempted Government Securities (as defined in section 
3(a)(12) of the 1934 Act) or to a bank (A Borrower);
    (B) Neither the Borrower nor an affiliate of the Borrower has 
discretionary authority or control with respect to the investment of 
the plan assets involved in the transaction, or renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets;
    (C) The lending plan receives from the Borrower (either by physical 
delivery or by book entry in a securities depository) by the close of 
the lending fiduciary's business on the day in which the securities 
lent are delivered to the Borrower, collateral (the Collateral) 
consisting of cash, securities issued or guaranteed by the United 
States Government or its agencies or instrumentalities, or irrevocable 
bank letters of credit issued by a person other than the Borrower or an 
affiliate thereof, or any combination thereof, having, as of the close 
of business on the preceding day, a market value or, in the case of 
letters of credit a stated amount, equal to not less than 100% of the 
then market value of the securities lent;
    (D) Prior to the loan of any securities, the Borrower furnishes the 
Applicants with the most recent available audited statements of the 
Borrower's financial condition and a representation that, at the time 
the loan is negotiated, there has been no material adverse change in 
its financial condition since the date of the most recent financial 
statements furnished to the plan, that has not been disclosed to the 
Applicants. Such representation may be made by the Borrower's agreeing 
that each such loan shall constitute a representation by the Borrower 
that there has been no such material adverse change;
    (E) The loan is made pursuant to a written loan agreement, the 
terms of which are at least as favorable to the lending plan as an 
arm's length transaction with an unrelated party would be. Such 
agreement may be in the form of a master agreement covering a series of 
securities lending transactions;
    (F) (1) The lending plan (a) receives a reasonable fee that is 
related to the value of the borrowed securities and the duration of the 
loan, or (b) has the opportunity to derive compensation through the 
investment of cash collateral. Where the plan has that 
[[Page 484]] opportunity, the plan may pay a loan rebate or similar fee 
to the Borrower, if such fee is not greater than the plan would pay in 
a comparable transaction with an unrelated party;
    (2) The plan receives the equivalent of all distributions made on 
or with respect to the loaned securities during the term of the loan;
    (G) If the market value of the Collateral at the close of trading 
on a business day is less than 100% of the market value of the borrowed 
securities at the close of trading on that day, the Borrower shall 
deliver, by the close of business on the following business day, an 
additional amount of Collateral (as described in paragraph C) the 
market value of which, together with the market value of all previously 
delivered Collateral, equals at least 100% of the market value of all 
the borrowed securities as of such preceding day. Notwithstanding the 
foregoing, part of the Collateral may be returned to the Borrower if 
the market value of the Collateral exceeds 100% of the market value of 
the borrowed securities, as long as the market value of the remaining 
Collateral equals at least 100% of the market value of the borrowed 
securities;
    (H) The loan may be terminated by the lending plan at any time. In 
the event of termination, the Borrower shall deliver Replacement 
Securities, as defined below, to the lending plan within 5 business 
days of notice of termination of the loan. The value of the securities 
that the Borrower is obligated to deliver upon termination of a loan of 
Agency Securities will be no less than the value of the loaned Agency 
Securities at the termination of the loan. For purposes of this 
exemption, the term ``Replacement Securities'' means securities that: 
(a) are issued and/or guaranteed by the same agency as the loaned 
securities, (b) have the same coupon as the loaned securities, (c) have 
a principal amount at least equal to but no more than 2% greater than 
the then current principal amount of the loaned securities, (d) are of 
the same program or class as the loaned securities, and (e) either (i) 
have an aggregate weighted average maturity within a 12-month variance 
of the then current aggregate weighted average maturity of the loaned 
securities, but in no case will the variance be more than 10% of such 
aggregate weighted average maturity of the loaned securities, or (ii) 
meet some other comparable objective standard containing a range of 
variance that is no greater than that described in (i) above and that 
assures that the aging of the loaned securities is properly taken into 
account.
    If the Borrower fails to return the Replacement Securities, the 
lending fiduciary may apply the Collateral to purchase other 
Replacement Securities, to cover any other obligations of the Borrower 
under the agreement, or to pay other expenses associated with the sale 
and/or purchase. In addition, the Borrower is obligated to pay the 
amount of any remaining obligations and expenses not covered by the 
Collateral plus interest at a reasonable rate.
    Notwithstanding the foregoing, the Borrower may, in the event the 
Borrower fails to return borrowed securities as described above, 
replace non-cash collateral with an amount of cash not less than the 
then current market value of the collateral, provided such replacement 
is approved by the lending fiduciary.
    If the Borrower fails to comply with any condition of this 
exemption in the course of engaging in a securities lending 
transaction, the plan fiduciary who caused the plan to engage in such 
transaction shall not be deemed to have caused the plan to engage in a 
transaction prohibited by section 406(a)(1) (A) through (D) of the Act 
solely by reason of the Borrower's failure to comply with the 
conditions of the exemption.
    For purposes of this exemption the term ``affiliate'' of another 
person shall include: (a) Any person directly or indirectly, through 
one or more intermediaries, controlling, controlled by, or under common 
control with such other person; (b) Any officer, director, or partner, 
employee or relative (as defined in section 3(15) of the Act) of such 
other person; and (c) Any corporation or partnership of which such 
other person is an officer, director partner. For purposes of this 
definition, the term ``control' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.

EFFECTIVE DATE: This exemption is effective May 27, 1994.

WRITTEN COMMENTS: In the Notice of Proposed Exemption (the Notice), the 
Department invited all interested persons to submit written comments on 
the proposed exemption within 45 days from the date of publication of 
the Notice in the Federal Register. All written comments were to have 
been received by the Department by December 16, 1994. The Department 
received one written comment. The comment was submitted on behalf of 
the Applicants. The issues addressed in the comment and the 
Department's responses are summarized as follows:
    1. The Applicants request the following modifications be made in 
order to make the exemption consistent with the terms and conditions of 
PTE 81-6:
    (a) Condition (D) of the proposed exemption would require the 
Borrower to furnish the Applicants with the most recent available 
audited statements of the Borrower's financial condition and a 
representation that, at the time the loan is negotiated, there has been 
no material adverse change in its financial condition since the date of 
those statements. The Applicants request that the following language be 
added at the end of condition (D):

    Such representation may be made by the Borrower's agreeing that 
each such loan shall constitute a representation by the Borrower 
that there has been no such material adverse change.

The Department has no objection to the proposed modification, and 
accordingly, has amended the language of condition (D).
    (b) Condition (G) of the proposed exemption would require the 
Collateral received by the lending plan to be equal to at least 102% of 
the market value of the loaned securities. The Applicants request that 
this condition be modified to require that the Collateral be equal to 
100% of the market value of the loaned securities. According to the 
Applicants, requiring collateral equal to 102% of the market value of 
the loaned securities will discourage the lending of securities, 
thereby defeating the purpose of the exemption, which is to permit 
lending as a safe and valuable way of increasing the earnings of a 
portfolio. The Applicants note that the Department originally set the 
minimum level of collateral at 102% when PTE 81-6 was proposed but was 
subsequently convinced by commentators that a collateral value of 100% 
would provide adequate protection to plans. The Department is persuaded 
by the Applicants' comment that a collateral value of 100% will provide 
sufficient protection for the participants and beneficiaries of the 
Plans. Accordingly, the Department has made the requested modification. 
The Department notes, however that nothing contained in the exemption 
prohibits a lending plan for negotiating a higher collateral value if 
it is appropriate under the circumstances. The Applicants also request 
that the following language be added to the end of condition (G):

    Notwithstanding the foregoing, part of the Collateral may be 
returned to the Borrower if the market value of the Collateral 
exceeds 100% of the market value of the borrowed securities, as long 
as the market value of the [[Page 485]] remaining collateral equals 
at least 100% of the market value of the borrowed securities.

    With the respect to the proposed languages concerning the return of 
a portion of the collateral under certain circumstances, the Department 
has no objection to the proposed additional language, and accordingly, 
has inserted this language at the end of condition (G).
    (c) Condition (H) of the proposed exemption contains an explanation 
of the procedure involved in terminating the loan of securities. The 
Applicant requests that the first 3 sentences of condition (H) be 
replaced with the following:

    The loan may be terminated by the lending plan at any time, 
whereupon the Borrower shall deliver Replacement Securities to the 
lending plan within 5 business days of notice of termination of the 
loan.

Although the Department does not object to the deletion of the 
reference to the trustee of the fund, the Department wants to make 
clear that the value of the securities that the Borrower is obligated 
to deliver upon termination of a loan of Agency Securities must be no 
less than the value of the loaned Agency Securities at the termination 
of the loan, as represented by the Applicants in correspondence dated 
September 26, 1994. The Department believes that this condition is 
integral to the proposed exemption and in the best interests of the 
participants and beneficiaries of the Plans. Consequently, in response 
to the Applicants' comments, the Department has modified the first 2 
sentences of condition (H), and replaced the third sentence with the 
following:

    The value of the securities that the Borrower is obligated to 
deliver upon termination of a loan of Agency Securities will be no 
less than the value of the loaned Agency Securities at the 
termination of the loan.

    (d) The Applicants also request that the first sentence of the 
second paragraph of condition (H) be replaced with the following 
sentence:

    If the Borrower fails to return Replacement Securities, the 
Collateral may be applied to purchase other Replacement Securities, 
to cover any other obligations of the Borrower under the agreement, 
or to pay other expenses associated with the sale and/or purchase.

The Department has no objection to the proposed modification, and 
accordingly, has made this substitution.
    (e) In addition, the Applicants have requested that the following 
language be added immediately preceding the last paragraph of condition 
(H):

    Notwithstanding the foregoing, the Borrower may, in the event 
the Borrower fails to return borrowed securities as described above, 
replace non-cash collateral with an amount of cash not less than the 
then current market value of the collateral, provided such 
replacement is approved by the lending fiduciary.
    If the Borrower fails to comply with any condition of this 
exemption in the course of engaging in a securities lending 
transaction, the plan fiduciary who caused the plan to engage in 
such transaction shall not be deemed to have caused the plan to 
engage in a transaction prohibited by section 406(a)(1) (A) through 
(D) of the Act solely by reason of the Borrower's failure to comply 
with the conditions of the exemption.

The Department has no objection to the proposed additional language, 
and accordingly, has made the requested modification.
    2. The Applicants have requested that the phrase ``issued and/or 
guaranteed'' replace the term ``issued'' wherever that term is used, in 
order to clarify that the Agency Securities may be either issued and/or 
guaranteed by an agency. In accordance with the Applicants' request, 
the Department has made the appropriate modifications to the exemption.
    3. The Applicants wish to clarify that their assertion that over 
95% of the Agency Securities traded in the market are effected using a 
generic trading method is merely an estimate and is not intended as a 
representation of fact.
    4. The Applicants also wish to clarify that the Applicants' 
obligation to monitor the market value of the loaned securities on a 
daily basis extends to business days only.
    5. The Department notes that the parenthetical ``plus interest'' in 
condition (e) of paragraph number 5 in the proposed exemption was 
included in the notice inadvertently.
    The changes described above are hereby incorporated into the 
exemption as granted. Accordingly, after giving full consideration to 
the record, the Department has determined to grant the exemption, as 
described herein. In this regard, the Applicants' comments have been 
included as part of the public record for the exemption application. 
The complete application file is made available for public inspection 
in the Public Documents Room of the Pension and Welfare Benefits 
Administration, room N-5638, U.S. Department of Labor, 200 Constitution 
Avenue N.W., Washington, D.C. 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on November 1, 1994 at 59 FR 54635.

for further information contact: Virginia J. Miller of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

Vaquero Farms, Inc. Profit Sharing Plan and Agri-Bis, Inc. Profit 
Sharing Plan (the Plans)

Located in Stockton, California
[Prohibited Transaction Exemption 94-89; Application Nos. D-9711 and 
D-9712]

Exemption

    The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the code, by reason of section 4975(c)(1) (A) through (E) of the Code 
shall not apply to the past cash sale (the Sale) by the plans of 
certain promissory notes (the Notes) to Vaquero Farms, Inc. (the 
Applicant) and Agri-Bis, Inc., a related company, provided that the 
following conditions were met at the time of the sale: (1) The sales 
price of the Notes was not less than their aggregate fair market value 
on the date of the Sale; (2) the Sale was a one-time transaction for 
cash; (3) the Plans did not pay any fees or commissions in connection 
with the Sale; and (4) the Plans' independent fiduciary determined that 
the transaction was appropriate for and in the best interests of the 
Plans and their participants and beneficiaries.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on September 30, 1994 at 59 
FR 50013.

effective date: This exemption is effective as of May 31, 1994, the 
date of the Sale.

for further information contact: Virginia J. Miller of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must 
[[Page 486]] operate for the exclusive benefit of the employees of the 
employer maintaining the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 29th day of December, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 95-110 Filed 1-3-95; 8:45 am]
BILLING CODE 4510-29-M